• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

risk budgeting vs. portfolio construction

S

Smith

Member
in Chapter 16 - investment management, part 3 - risk budgeting, and part 4 - portfolio construction, actually, the content seems highly similar, that,
1) risk budgeting: there are two parts, one is allocating overall risk into strategic risk and active risk, and the other is allocating the total active risk across portfolios.
2) portfolio construction: this involves a two-stage process, the first one is seting a strategic benchmark by which to measure straegic risk, the second one is selecting managers to allcoate the active risk.
Is my understanding correct? on that case, is there difference between the two topics? i.e. risk budgeting for investment strategy and investment portfolio construction.
 
You are correct, in that the content is extremely similar across these two sections of the chapter and you've given a great summary here of the key content. Risk budgeting can be used in a wider context for an organisation but when it is used for setting an investment strategy it is about the construction of the appropriate investment portfolio.
 
Back
Top